Should the unemployment rate be lower given the current job-vacancy rate?

See On Jobs, No Time for a Celebratory Beveridge by JUSTIN LAHART of The Wall Street Journal. Excerpt:

"There were 3.5 million job openings at the end of February, the Labor Department said Tuesday, up from three million a year earlier. The job-vacancy rate, which measures job openings as a percentage of total jobs in the U.S., was 2.6%.

In the seven years before the recession, a vacancy rate of 2.6% was associated with an unemployment rate of about 5.7%. Now, the unemployment rate is much higher—it was 8.2% in March, down from 8.3% in February. That may augur a disturbing shift in the labor market that will keep more people out of work, slow the economy and make U.S. companies less profitable.

High job-vacancy rates come about because employers are having a hard time filling jobs. So they are associated with low unemployment rates. When vacancy rates are low, the opposite is true. Plot out unemployment rates against vacancy rates, and you get what is called the Beveridge curve, a downward-sloping line named after the late British economist William Beveridge.

But the Beveridge curve, nearly three years after the economy began to recover, looks different than it did before the recession struck in late 2007. Unemployment rates are much higher versus vacancy rates than they used to be. Shifts like that in the Beveridge curve suggest the labor market has become less efficient at matching workers with jobs, something that can happen when workers don't have the skills that employers need."

The problem could be a mismatch between the skills of the unemployed and the skills employers want (this is an example of structural unemployment). For those workers, they could be unemployed for a long time.

What’s the Easiest Way to Cheat on Your Taxes?

Click here to read this NY Times Magazine article. The easiest way is:

"Run your own company. More specifically, as Greg Kyte, a Utah C.P.A., puts it, be the sole proprietor of a Schedule C business. Then you can buy stuff for yourself and probably write it off as a business expense."

Other excerpts:

"When the modern income tax was created in 1913, the code was 27 pages long. Last year, it was 5,296 pages."

"“I’ve seen people with infant children claiming that their kids are doing work,” says Howard Rosen, a St. Louis-based C.P.A. “I’m talking about a 3-year-old doing filing,” Rosen says. “He didn’t even know the alphabet.”"

"For 2006, the most recent year for which data are available, the I.R.S. collected 86 percent of what it was owed in taxes. Most of this $385 billion shortfall came from underreporting income, which is often more creative than it sounds. Gambling winnings, for example, are taxable..."

"Loop­holes will cost the gov­ern­ment rough­ly $1 tril­lion in lost rev­e­nue this year..."

"The mortgage-interest deduction, which lets people deduct the interest they pay on their mortgages, requires the government to essentially write an annual check to everyone with a mortgage. The incentive was supposed to encourage more people to buy houses, but there’s not much evidence for this..."

"It does, however, encourage people to take out even bigger mortgages. It will cost the government an estimated $84 billion this year."

"Why is the tax code so complicated? The answer, according to most accountants, is simple: “exceptions to the exceptions,” which, typically, are extremely complicated."

Keynes As An Investor

See Keynes: One Mean Money Manager by Jason Zweig of The Wall Street Journal. This generated many comments and Zweig's response to them is at Keys to Thinking About Keynes. But not everyone thought Keynes was a great investor. See Was Keynes really a savvy investor? by Greg Mankiw of Harvard.

Here are excerpts from Zweig's article:

"From 1924 through 1946, while writing numerous books and overhauling the global monetary system, Keynes also found time to run the endowment fund of King's College at Cambridge.

Over that period, according to Messrs. Chambers and Dimson, Keynes outperformed the U.K. stock market by an average of eight percentage points annually, adjusted for risk.

Such great investors as Benjamin Graham, Peter Lynch, John Templeton and Warren Buffett beat the market by an annual average of three to 13 percentage points over their careers. Most of them, however, didn't have to cope with the Great Depression or World War II.

How did Keynes do it?

Flexibility, resilience and independence.

Keynes began as what we would today call a "macro" manager, relying on monetary and economic signals to rotate in and out of stocks, bonds and cash. He traded foreign currencies and commodities. As a director of the Bank of England, Keynes was privy to inside information about interest-rate changes, although there isn't evidence that he traded on it.

But Keynes wasn't a very good macro manager. He lagged behind the British stock market miserably until 1928, and he had 83% of his primary portfolio in stocks going into the fall of 1929.

"It's hard to time the markets," Mr. Chambers says. "Keynes struggled with it, and then he missed the 1929 crash—even with an unrivaled network of information sources."

So Keynes made a series of radical changes: He switched from being a "top down" asset allocator to a "bottom up" stock picker. He tilted sharply toward undervalued small and midsize companies.

Keynes also made titanic bets on industries he thought were cheap..."

Are Monkeys More Rational Than Humans?

See The Hard Science of Monkey Business by AMY DOCKSER MARCUS of The Wall Street Journal. It is about the research that Yale professor Laurie Santos and the economic experiments she does with primates (Capuchin monkeys). Excerpts:

"The primate lab is home to 10 "shockingly smart" brown Capuchin monkeys trained to trade tokens for food. It was a short leap for Dr. Santos and her team to decide to study how monkeys make decisions about money."

"In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one."

"Researchers wondered whether monkeys, like humans, desire an expensive item more. For the same number of tokens, the monkeys could choose whether they got a tiny square of blue Jell-O or a big chunk of red Jell-O. Later, the monkeys were allowed to choose which kind they wanted. If the monkeys were like humans, they would have gone for the blue Jell-O, the more "expensive" choice. But the monkeys gorged happily on both.

The researchers are still gathering and analyzing the data. One possibility: Human taste preferences are based on many factors, whereas the monkeys' are not. Some might argue that human economic behavior is more advanced since it includes "culture and meta-awareness" in decision-making, said Dr. Santos. There's another, less flattering possibility too. "The monkeys," she said, "are more rational.""

Which Type Of Unemployment Is The Biggest Problem?

Ben Bernanke raised this issue in a recent speech. See Fed Signals Resolve on Rates: Cheap Credit Still Needed Despite Recent Employment Gains, Bernanke Says by JON HILSENRATH And KRISTINA PETERSON of the Wall Street Journal. Excerpt:

"The Fed chairman took on some thorny economic issues in making his case for low rates. Among them is the question of whether the nation's still-high unemployment rate represented a so-called cyclical problem that can be resolved simply by encouraging economic growth with low interest rates, or a fundamental structural problem in the labor markets that growth itself and the Fed can't fix.

Mr. Bernanke came down on the side of those who argue the problem is predominantly cyclical and low interest-rate policies are helping to alleviate it. But many economists disagree with him, and he acknowledged the matter isn't settled.

The debate about cyclical and structural unemployment has been going on for a couple of years. Economists generally say cyclical unemployment is caused when weakness in the overall economy pushes down demand for goods and services and therefore the need for workers that provide them. Structural unemployment reflects deeper problems, such as a gap between the skills workers have and those that employers want. Structural problems don't necessarily disappear as the economic recovery gains traction.

Mr. Bernanke—in making his case for primarily cyclical unemployment—pointed out that newly unemployed workers and long-term unemployed workers all experienced diminished prospects of getting new jobs during and after the downturn. That suggests the job market hasn't punished one group of people disproportionately to others. Instead, he said, there weren't enough jobs for a wide range of workers in a wide range of industries. "The fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand, rather than a worsening mismatch of skills and jobs," he said.

But some economists disagree and the stakes are high. "You could be seeing a policy error in the making," said Wells Fargo economist John Silvia, who lists an array of factors that he says point to structural problems in the job market, which he says faster economic growth can't resolve.

Employment of college graduates is up 5.8% in this recovery, while employment of high school dropouts is down 3.9%, according to Labor Department data. This suggests that low-skill workers are having a harder time finding work.

Mr. Silvia also notes that unemployment is especially high in certain occupations, such as construction. It is also high in places, such as Nevada, where many people can't move because they owe more on their mortgages than their homes are worth. He worries that the Fed's low-interest-rate policies might cause inflation and do little to resolve deeply embedded unemployment problems."

The WSJ also had an article called Time Not on Side of the Jobless. It mentions:

"But some economists argue that in the wake of a severe recession, the lines between cyclical and structural unemployment can become blurred. Workers who lose their jobs because of cyclical factors—a factory that lays off workers, a restaurant that closes, an office that decides to go without a front-desk receptionist—might stay out of work so long that they become effectively unemployable. Their skills erode, they fall behind on the latest technologies and industry trends, or they become stigmatized by employers who assume there must be something wrong with anyone who's been unemployed so long."

I discussed similar issues in one of my earliest posts from back in 2006. It was called Edmund Phelps, Meet Harry Hopkins. Phelps is a Nobel prize winning economist and Harry Hopkins was an adviser to FDR

Other related posts:

Structural Unemployment In The News

Untangling the Long-Term-Unemployment Crisis

A Reversal Of Structural Unemployment?

Robot Journalists-A Case Of Structural Unemployment?

Some Reasons Why Firms Are Not Hiring

Some Good Economic News

As a card carrying dismal scientist, I should not display optimism. But Google business news had 4 positive stories listed. Here they are:

S&P 500 Heads for Best First Quarter Since 1998. It is up 12% for the year!

Texas Unemployment Rate Down To 7.1 Percent. Excerpt:

"The state's jobless rate was down from 7.3 percent in January and has dropped a full percentage point since August, the Texas Workforce Commission said. February's unemployment rate is the lowest since March 2009." (The U. S. unemployment rate was 8.3% for February)

US consumer spending rises as unemployment falls. Excerpt:

"Consumer spending climbed 0.8pc in February, the Commerce Department said on Friday, following a 0.4pc increase in January.

The figure was better than the 0.6pc Wall Street economists had expected, and came as a separate survey put consumer confidence at its highest level since February last year."

Consumer sentiment index at highest rate since late 2007. Excerpt:

"High oil prices or not, American consumers are feeling more confident about conditions than at any time since the recession began in late 2007.

That's according to the latest survey by Thomson Reuters/University of Michigan, which reported Friday that its March consumer sentiment index climbed to 76.2 from 75.3 a month ago. That pushed up the average reading for the first quarter to the highest level since the fourth quarter of 2007.

What's been boosting sentiment? In a word, jobs.

The last three months have seen an acceleration of job growth, and the Reuters/Michigan survey found that more people heard news about employment gains than at any other time in the 60-year history of the survey. And only 19% said they thought the jobless rate would increase in the year ahead."

Economists see more reasons for optimism this year.

"Economists are increasingly confident that some pillars of the U.S. economy will improve this year, but they still remain cautious in their expectations on the overall pace of economic growth.

The National Association for Business Economics said Monday that forecasters have raised their expectations for employment, new home construction and business spending this year. But they held on to their average prediction that America's gross domestic product, or GDP, will grow at a rate of 2.4 percent. That's a slight improvement from 2011, when economists believe the economy grew 1.6 percent. Final economic growth numbers for 2011 are due out Wednesday.

GDP reflects the economy's total output of goods and services. The latest forecast is in line with one issued by the group in November that called for the economy to grow 2.4 percent this year. Forecasters predict growth will be stronger in the second half of 2012 than it will be through June."

I think this guy captures the excitement:

How can an economy that is growing so slowly produce such big declines in unemployment?

See Piecing Together the Job-Picture Puzzle by Jon Hilsenrath of The Wall Street Journal. Excerpts:

"Back in 1962, Yale University economist Arthur Okun described a long-running relationship between economic growth and jobs. When the economy grew faster than its long-run trend, the unemployment rate tended to fall by about half as much as the additional growth in percentage terms. So growth of 3.5% in a year—one percentage point above a long-run trend of 2.5%—would bring down the unemployment rate by a half percentage point in that year. And it worked the same way in reverse. Growth one percentage point below trend would push the unemployment rate up half a percentage point.

Economists called the relationship "Okun's Law." Forecasters still depend on this principle to make predictions about the future. But the law has been unreliable lately. Under the old rule of thumb, it would take growth between 4% and 5% to explain the improvements in unemployment in the past year—much more than the recovery has actually delivered."

"...Okun's Law also broke down in the other direction a few years ago..."

"Some of the miss was because the downturn turned out worse than expected and much of it was because unemployment rose more than Okun's Law predicted."

Why might Okun's Law not be working?

"...company managers were so shocked by the financial crisis in 2008 and 2009 that they fired workers more aggressively than they would in a conventional downturn."

"Over the past six months ... as fear and uncertainty have dissipated, firms appear to have reversed course and gone back toward more normal staffing levels."

One economist said

"these overshoots might soon run their course and that Okun's Law will reassert itself. When it does ... the unemployment rate could stall out at high levels because the economy isn't growing fast enough to justify more hiring.

"The only way unemployment will keep coming down is if GDP growth picks up substantially,"

But there are other potential sides to the story:

"Other story lines could be at play. The government's growth data are always a work in progress. Government statisticians regularly revise it as more information—such as more complete tax returns from businesses and households—becomes available. Revisions to the data could someday show the economy is actually growing more robustly than the data currently show. It is also possible that companies are on to something and they are hiring aggressively because they anticipate more growth than the data currently show.

A less sanguine explanation could be a dangerous productivity slowdown. It might be the case that the workers being hired aren't improving their productivity as much as workers had before. If they aren't as productive, companies need more of them."

Click here to read an earlier post about Okun's Law

Click here to read "Is Okun’s Law Really Broken?" by Justin Wolfers. It from 2010. A little on the technical side but very interesting.

Do Looks Help In The Job Market?

Maybe it is unfair, but it seems so. See The Beauty Premium by Christopher Shea of The Wall Street Journal. It describes a study done in Argentina where it is common for job applicants to include a picture with their resume. Here are excerpts:

"... attractive job candidates get called back 36% more often than unattractive ones,....

10.3 % of the attractive fictional candidates got called, compared with 7.6% of the unattractive candidates — and attractive people got called sooner. Attractive member of both sexes benefited from the beauty advantage."

Here are two earlier posts on related topics:

Do looks matter? (Yes, good looking workers get paid more even when taking other factors into account)

From The Life Is Not Fair Category: Better Looking, Tall, Thin People Make More Money

Bolivians fight over quinoa land

Not much I can add to this story. Click here to read it.

"LA PAZ, Bolivia (AP) — Bolivian authorities say at least 30 people have been injured in a fight between two communities over land for growing quinoa, the Andean "supergrain" whose popularity with worldwide foodies has caused its price to soar.

Oruro state police chief Ramon Sepulveda says combatants used rocks and dynamite against each other Wednesday and Thursday. A government commission was dispatched to the two high plains communities south of La Paz.

Farmland in the region is owned not by individuals but communities.

Authorities say the dispute is related to climate change because quinoa can now be cultivated in areas previously subject to frequents frosts.

Bolivia produces 46 percent of the world's quinoa, which has nearly tripled in price in the past five years."

Supply And Demand And Comic Books

See Man's childhood comic collection fetches $3.5M by Jamie Stengle of the Associated Press. Excerpts:

"A copy of Detective Comics No. 27, which sold for 10 cents in 1939 and features the debut of Batman, got the top bid at the New York City auction Wednesday. It sold for about $523,000..."

"Action Comics No. 1, a 1938 issue featuring the first appearance of Superman, sold for about $299,000..."

Why would a 10 cent comic from 1938 sell for so much now? There must be a great demand and it looks like there is not much of a supply since

"Of the 200,000 copies of Action Comics No. 1 produced, about 130,000 were sold and the about 70,000 that didn't sell were pulped. Today, experts believe only about 100 copies are left in the world..."

And barring fakes or forgeries or specially marked reprints, more copies of Action Comics #1 cannot be produced. So the price is not likely to fall very much.

DC Comics did issue some reprints in the 1970s, but they were over-sized and clearly marked as reprints. Click here to see some of them.

The CPI is about 16 times higher today than in 1939. That would make the price of Detective Comics #27 $1.60 instead of 10 cents. If you put $1.60 in an investment in 1939 and if it grew 19.29% per year for 72 years, it would end up being about $523,000 in 2011. If you put the $1.60 in the stock market and if it grew 10% per year for the 72 years, it would only end up being about $1,529 in 2011.

The Future Is Better Than You Think

That is the subtitle of a book recently reviewed in The Wall Street Journal. See Defying the Doomsayers: "Abundance" argues that growing technologies have the potential not only to spread information but to solve some of humanity's most vexing problems. The review mentions that some optimism might be good in these negative times although it discusses how over-optimism can be damaging. Perhaps the human race is always searching for the right or optimal amount of optimism.

The book they reviewed is called Abundance: The Future Is Better Than You Think by Peter H. Diamandis and Steven Kotler.

Here are excerpts from the review:

"Mr. Diamandis is the chairman and chief executive of the X Prize Foundation and the founder of more than a dozen high-tech companies. With his journalist co-author, he has produced a manifesto for the future that is grounded in practical solutions addressing the world's most pressing concerns: overpopulation, food, water, energy, education, health care and freedom. The authors suggest that "humanity is now entering a period of radical transformation where technology has the potential to significantly raise the basic standard of living for every man, woman, and child on the planet.""

"Given all the talk nowadays about income inequality, the authors' discussion of poverty is especially instructive. The number of people in the world living in absolute poverty has fallen by more than half since the 1950s. At the current rate of decline it will reach zero by around 2035. Groceries today cost 13 times less than 150 years ago in inflation-adjusted dollars. In short, the standard of living has improved: 95% of Americans now living below the poverty line have not only electricity and running water but also Internet access, a refrigerator and a television—luxuries that Andrew Carnegie's millions couldn't have bought at any price a century ago."

"Predictions of a rosy future have a way of sounding as unrealistic as end-is-nigh forecasts. But Messrs. Diamandis and Kotler are not just dreamers. They lay out a plausible road map, discussing, among other things, the benefits of do-it-yourself tinkering—like the work by geneticist J. Craig Venter in beating the U.S. government in the race to sequence the human genome—and the growing willingness of techno-philanthropists like Bill Gates to tackle real-world problems.

The biggest hurdles, however, are not scientific or technological but political. There are still too many corrupt dictators and backward-looking governments keeping millions in penury. But as we have seen lately, the misruled have a way of throwing off despotic governments. With ever more people reaching for freedom, countless millions are tacitly embracing the Diamandis motto: "The best way to predict the future is to create it yourself.""

Another book coming out now with a similar theme is The Coming Prosperity: How Entrepreneurs Are Transforming the Global Economy by Philip Auerswald.

Does high social class lead to unethical behaviors?

See New Studies Determine Which Social Class More Likely to Behave Unethically from the National Science Foundation. Excerpts are below but George Mason University economist Tyler Cowen had some interesting counterpoints. See How good are the upper classes?

"A series of studies conducted by psychologists at the University of California, Berkeley and the University of Toronto in Canada reveal something the well off may not want to hear. Individuals who are relatively high in social class are more likely to engage in a variety of unethical behaviors.

That is the finding of new research published in today's Proceedings of the National Academy of Sciences and it's a doozy.

"Our studies suggest that more positive attitudes toward greed and the pursuit of self-interest among upper-class individuals, in part, drive their tendencies toward increased unethical behavior," said lead researcher Paul Piff of UC Berkeley."

"Participants then played a "game of chance" in which a computer "randomly" presented them with one side of a six-sided die on five separate rolls. Researchers told participants higher rolls would increase their chances of winning a cash prize and were asked to report their total score at the end of the game. In fact, die rolls were pre-determined to sum up to 12. The extent to which participants reported a total exceeding 12 served as a direct behavioral measure of cheating.

Greed "is a robust determinant of unethical behavior," the researchers write in the report. "Plato and Aristotle deemed greed to be at the root of personal immorality, arguing that greed drives desires for material gain at the expense of ethical standards." For this study, the researchers conclude that, in part, due to their more favorable beliefs about greed, upper-class individuals are more willing to deceive and cheat others for personal gain."

(Hat Tip: Bruce Norton)

Sale Of The Nike All-Star Collection Sneakers Causes A Riot

See Riot erupts at Florida Mall during Nike All Star collection sneaker release event. Excerpt:

"A riot erupted late Thursday night at the Florida Mall as hundreds of people became disordelry vying to buy special NBA All Star sneakers at a special event at the Foot Locker. It was so bad police with riot shields and on horseback had to be called in."

"The full name of the sneakers is the Foamposite One Galaxy. It has a constellation-like print with a glow-in-the-dark sole and they were set to go on sale for the first time in stores at midnight Thursday at a retail price of $220.00. One thing that may have led to the increased demand at the store is that Nike decided not to sell the shoes online."

It seems like even $220 is below the equilibrium price if the quantity demanded is greater than the quantity supplied (at least on the first day or two). Perhaps part of what people are buying is being first. So any time price is too low you get a shortage and some other allocation method besides price takes over (like waiting in line).

If stores are so concerned about safety, they should consider selling it at a much higher price on the first day (with things like Play Stations, they end up getting sold for much more than the retail price on eBay very soon after the first day anyway). If some people object to such a high price or claim gouging, the store can remind people that they are trying to keep the peace and keep consumers safe. They could also pledge to donate some of the extra profit to charity. That could create some good will.

Back in 2006, police officers were allowed to go to the head of the line when the Play Station 3 came out. See If Prices Are Not Used, Other Allocation Methods Emerge: Police Officers Get PS3's First

See also How to Stop the PlayStation Violence

What’s an Oscar Really Worth?

Click here to read this CNBC article by Julia Boorstin. Excerpt:

"Oscar winners bring in 7.6 percent higher box office return on average than nominees that don’t win, according to IBIS world. On average, winners of Best Picture earned 57 percent of their total revenue before the nominees were announced, 27 percent once they were nominated and more than 15 percent after winning an Oscar. Nominees that didn’t bring home the gold earn just 5 percent of their total take after the awards show."

That means that, for example, “Extremely Loud and Incredibly Close,” which has grossed $31 million so far (not very much by Hollywood standards), would end up making about $36.5 million if it wins and $32.6 if it does not. So about an extra $4 million at stake.

It is not quite clear to me if those percentages are right. For winners we have 57 + 27 + 15 = 99, which is pretty close to 100% and it could just be a rounding issue. But for losers, it only adds up to 89%. Since they only get 5% after the awards show, the earlier numbers have to be higher than 57 and 27. If the earlier 95% has a 57/27 ratio, it would be something like 64% and 31%.

The article also discusses the economics of the cost of ads and ratings issues.

Struggling Cities Turn to a Crop for Cash

Click here to read this New York Times article by Michael Cooper. The crop is marijuana. Excerpt:

"As the stubborn economic downturn has forced this city to take painful steps to balance its budget in recent years, it has increasingly turned to one of its newer industries to raise much-needed revenues: medical marijuana dispensaries.

The city has raised taxes on marijuana dispensaries several times in the past few years, and last year it collected $1.4 million in taxes from them — nearly 3 percent of all the business taxes it collected. Now Oakland plans to double the number of dispensaries it licenses, to eight from the current four, in the hopes that it can collect even more revenue.

“This is general fund revenue — it all goes into the melting pot,” said David McPherson, the city’s tax and revenue administrator. “When you’re making decisions about what to continue keeping or not, it goes into that decision process. If you don’t have that money, then you’re making other decisions about ‘Are we going to close the libraries on Monday?’ ‘Are you going to end up cutting a cop?’ ‘Are you not giving funds to our arts and things that help our kids?’ ”

Sometimes lost in the discussion of medical marijuana is the extent to which it has become a small but growing source of new tax collections for cities and states that have been struggling to balance their budgets for more than four years now."

It could be that cities have recognized that the demand for marijuana is inelastic. When government taxes products like this they tend to get more revenue than if the tax products with elastic demand (the more elastic the demand the more quantity demanded changes when price changes).

Click here to see a simple, graphical explanation of what is going on

Click here to read a paper on this topic by Harvard economist Jeffrey Miron. He found that the elasticity for marijuana is -0.5. When it is less than 1 in absolute value, it is said to be inelastic. It means that if price goes up 10% quantity demanded only goes down 5%.

The Ethics of Incentives

Do incentives always work? If so, what kind of incentives? There is a new book out that discusses these issues called Strings Attached: Untangling the Ethics of Incentives by Ruth W. Grant. Here is a link to The New York Times book review: When Life Is a Bunch of Carrots by NANCY F. KOEHN. Excerpts:

"“How can legitimate uses of incentives be distinguished from illegitimate ones — bribery or blackmail, for example?” she asks. She puts forth three standards for evaluating incentives: legitimacy of purpose, the autonomy involved in choosing to accept an incentive, and the effect on the character of the parties involved.

She explains that the current notion of incentives emerged in three spheres in the early 20th century. The first was the young field of scientific management, in which Frederick Taylor experimented with paying workers by the task to increase productivity and reduce idleness.

Incentives also became an issue in the emergence of socialist economies: Would people be motivated to work if they weren’t rewarded according to effort? And, finally, the developing discipline of behavioral psychology also relied on incentives, in the form of outside action meant to “shift behavior from its usual paths,” Professor Grant writes."

"...incentives often undermine intrinsic motivation.

For example, British women who were offered cash in exchange for their blood were almost 50 percent less likely to accept the offer than women who were just asked to donate blood. This suggests that when both ethical and self-interested motives are present, they don’t act independently, Professor Grant says. “Instead, introducing self-interested incentives has negative effects,” she writes, “ ‘crowding out’ ethical motives while failing in themselves to produce the desired behavior.”

She says that paying children to elicit certain behavior may have destructive consequences in developing character, potentially nurturing self-interest at the expense of kinder motives. “Where students work in an environment that values only extrinsic rewards for learning,” she writes, “cheating goes up.”"

Are You More Likely To Be Successful If You Do Something You Love?

I thought of this when I read a book review in The Wall Street Journal last Saturday. See Never Too Late to Learn. The book reviewed was Guitar Zero by Gary Marcus. Here is the passage:

"Brain scans show that musicians' new neuronal connections vary according to the instrument they play. Violinists have their signature brain changes, brass players theirs. Loving what we do helps to form these new connections, because the same dopamine chemistry that gives us the pleasurable rush of reward consolidates new brain connections."

This reminded me of something the Freakonomics guys, Steven Levitt and Stephen Dubner, wrote about a few years ago. See A Star Is Made. Here are some excerpts:

"Anders Ericsson, a 58-year-old psychology professor at Florida State University. He is the ringleader of what might be called the Expert Performance Movement, a loose coalition of scholars trying to answer an important and seemingly primordial question: When someone is very good at a given thing, what is it that actually makes him good?"

He believes in "deliberate practice" which

"... entails more than simply repeating a task — playing a C-minor scale 100 times, for instance, or hitting tennis serves until your shoulder pops out of its socket. Rather, it involves setting specific goals, obtaining immediate feedback and concentrating as much on technique as on outcome."

"[Ericsson] makes a rather startling assertion: the trait we commonly call talent is highly overrated. Or, put another way, expert performers — whether in memory or surgery, ballet or computer programming — are nearly always made, not born. And yes, practice does make perfect. These may be the sort of clichés that parents are fond of whispering to their children. But these particular clichés just happen to be true.

Ericsson's research suggests a third cliché as well: when it comes to choosing a life path, you should do what you love — because if you don't love it, you are unlikely to work hard enough to get very good. Most people naturally don't like to do things they aren't "good" at. So they often give up, telling themselves they simply don't possess the talent for math or skiing or the violin. But what they really lack is the desire to be good and to undertake the deliberate practice that would make them better."

"Ericsson's conclusions, if accurate, would seem to have broad applications. Students should be taught to follow their interests earlier in their schooling, the better to build up their skills and acquire meaningful feedback."

What's In A Name? Money? Success?

See Easy To Pronounce Names Help Win Friends And Influence People by Catharine Paddock, PhD, in Medical News Today. Excerpts:

"...having a name that is easy to pronounce appears to confer a subtle advantage."

"Lead author of the study, Dr Simon Laham from the University of Melbourne in Australia told the press last week that people are often not aware of subtle biases when they make decisions and choices. He and his colleagues write about their findings in the Journal of Experimental Social Psychology."

"In particular they found that:

Candidates with more pronounceable names were more likely to be be favoured for job promotion and political office.

In a mock ballot, political candidates whose names were easier to pronounce were more likely to win than counterparts whose names were not so easy to say.

Attorneys with easy to pronounce names ascended more quickly to senior positions in their firms."

by Catharine Paddock PhD in Medical News Today

A Special Valentine's Message On Romantic Love

Below is a repeat of last year's Valentine's day post. I am not sure if the links are still working:

The first one is Kisses unleash chemicals that ease stress levels. The following quote gives you an idea of what it is all about: "Kissing, it turns out, unleashes chemicals that ease stress hormones in both sexes and encourage bonding in men, though not so much in women." I guess economists call this "interdependent utility functions." Meaning that what brings one person pleasure brings brings the other person pleasure, and vice-versa.

The other is Cocoa Prices Create Chocolate Dilemma. The article opens with "Soaring cocoa prices are creating a Valentine's Day dilemma for chocolate makers. They don't want to raise retail prices when recession-weary consumers are trying to limit their spending." The problem is crop diseases in Ivory Coast and Ghana. You might need to be a WSJ subscriber to read the whole article.

Here is a new article from yesterday's San Antonio Express-News (2-13-2011). Romance in bloom at workplace: Survey indicates 59% have taken the risk-filled leap. It seems like many people admit to having a romance at work and/or meeting their spouse at work. So what starts out as economic activity leads to some other needs being met.

Now the economic definition of romantic love.

Abstract: "Romantic love is characterized by a preoccupation with a deliberately restricted set of perceived characteristics in the love object which are viewed as means to some ideal ends. In the process of selecting the set of perceived characteristics and the process of determining the ideal ends, there is also a systematic failure to assess the accuracy of the perceived characteristics and the feasibility of achieving the ideal ends given the selected set of means and other pre-existing ends.

The study of romantic love can provide insight into the general process of introducing novelty into a system of interacting variables. Novelty, however, is functional only in an open system characterized by uncertainty where the variables have not all been functionally looped and system slacks are readily available to accommodate new things. In a closed system where all the objective functions and variables must be compatible to achieve stability and viability, adjustments in the value of some variables through romantic idealization may be dysfunctional if they represent merely residual responses to the creative combination of the variables in the open sub-system."

The author was K. K. Fung of the Department of Economics, Memphis State University, Memphis. It was from a journal article in 1979. More info on it is at this link. The entire article, which is not too long, can be found at this link.

Then there was this related article: Love really is blind, U.S. study finds. Here is an exerpt:

"Love really is blind, at least when it comes to looking at others, U.S. researchers reported on Tuesday.

College students who reported they were in love were less likely to take careful notice of other attractive men or women, the team at the University of California Los Angeles and dating Web site eHarmony found.

"Feeling love for your romantic partner appears to make everybody else less attractive, and the emotion appears to work in very specific ways in enabling you to push thoughts of that tempting other out of your mind," said Gian Gonzaga of eHarmony, whose study is published in the journal Evolution and Human Behavior.

"It's almost like love puts blinders on people," added Martie Haselton, an associate professor of psychology and communication studies at UCLA."

Who Is The World's Richest Primatologist?

Facebook founder Mark Zuckerberg. See Zuckerberg: The World's Richest Primatologist: People want to know about this town and that other town too. It's their nature by LIONEL TIGER in the WSJ. Excerpts:

"Primates always want to know what is going on. If it's over the hill where you can't see for sure what's up, that's even more stimulating and important to secure long-range survival."

"...in some ground-living species, members of the group glanced at the lead primate every 20 or 30 seconds. Think Louis Quatorze or Mick Jagger."

"The human who has most adroitly—if at first innocently, and in the next weeks most profitably—capitalized on this is Facebook founder Mark Zuckerberg."

"We know that many users' first and classical impulse was acquiring convivial acquaintance with young women. Facebook married that ancient Darwinian urgency to a cheap, brilliantly lucid, and endlessly replicable technology."

"Nearly one-sixth of homo sapiens are on Facebook. Half of Americans over age 12 are on it."

"His product costs him virtually nothing to produce—it is simply us. We enter his shop, display ourselves as attractively or interestingly as we can,..."

"And why? Just because we're primates with endlessly deep interest in each other, with a knack and need to groom each other..."

"There is much to transmit between towns and between people."

"...the consumer is not someone who wants something necessary, but rather one who seeks to assert simply what he is."

"The technology is new but the passion for connection isn't. In Paris a hundred years ago pneumatic tubes ran all the through the parts of town that could afford them so messages could be written and sent as if by courier."

"Mr. Zuckerberg became the richest primatologist in the world because he gave his customers nothing new, except the chance to be their old ape selves."